Since Russia’s invasion of Ukraine, allied nations have unleashed a suite of sanctions so rapid and broad in its reach that there are no true precedents. Even curbs on Iran or Venezuela — oil producers cut off from global finance — are by necessity imperfect.
However, there is another commodity exporter whose experience offers less obvious lessons for sanctioning nations and for Moscow: South Africa.
Facing ignominy over its apartheid policies, repression and military aggression beyond its borders, Pretoria found itself isolated and severely constrained from the mid-1980s, for a period that lasted until after the 1990 release from prison of opposition leader Nelson Mandela, who was later to become South African president.
Illustration: Mountain People
Yes, Russia is a far larger economy, and it exports oil instead of importing it. The world is more integrated than back then, raising the cost of imposing pain.
It is still striking how four decades ago, despite the moral outrage that drove the measures, sanctioning nations left loopholes because they wanted natural resources, and how South Africa was able to find alternative trade partners, much like Russia has. While there were unintended consequences for Pretoria’s domestic economy, not all were negative — a familiar tale. And yet, for all those weaknesses, restrictions did contribute to the demise of white South African minority rule, largely because the country in the early 1980s, like Russia today, was already an uncompetitive economy overdependent on extractive industries when the measures hit. The edifice collapsed.
Today, not only is Russia’s economy contracting — two out of three scenarios in an internal report seen by Bloomberg News last week suggested it would return to pre-war levels only at the end of the decade or later, thanks to transport blockades, and tech and financial curbs — but it is struggling on the battlefield.
In not much more than a week, Moscow has seen months of gains reversed as a Ukrainian counteroffensive made swift progress. That has caught Russia off-guard and unsettled even pro-Kremlin hawks.
South Africa is a timely reminder that when the going is already tough, extra constraints do encourage elites to press for credible negotiation.
The apartheid regime began in earnest in the late 1940s, when the National Party gained power and passed the clutch of racial laws that came to underpin the system. Boycotts trickled in slowly from then on, after the Sharpeville Massacre in 1960 and the violently quashed Soweto uprising of 1976. Restrictions accelerated in the 1980s, as patience ran out and perestroika reforms in the Soviet Union suggested there would no longer be a need for the US in particular to tolerate this bulwark against African communism. International investors left and punishment reached an apogee with the US’ Comprehensive Anti-Apartheid Act of 1986, when the US Congress finally overcame then-US president Ronald Reagan’s sanctions reticence.
Just as for Russia, it is obvious at a glance that trade sanctions were never the immobilizing blow they were intended to be, in part because the world needed metals and fuel. It was a porous system. South Africa remained a coal exporter even to European nations and increased sales to Asian economies. There was plenty of mislabeling and re-exporting — with the UK reportedly importing through the Netherlands — tactics that are also used today.
The country still sold gold, in bars if not in Krugerrands. It was able to strongarm landlocked Botswana and Zimbabwe into sanctions-busting. More importantly, although oil was South Africa’s “Achilles’ heel,” it was never cut off from international markets, thanks to Iran and others, and had for years invested in getting oil from coal.
Circumventing sanctions drove up costs as the terms of trade deteriorated, an “apartheid discount” was applied to exports and a “pariah cost” to imports, but ultimately the ability to access what it needed kept South Africa and its white elites in business — for a time.
Taiwan and Israel stepped up. It is all too recognizable a picture, as Russia, rebuffed by the West, pushes its oil and coal into other markets. Even Western corporates’ divestment did not batter growth immediately. Like now, assets were simply sold cheaply to locals.
Financial markets were a poor weathervane when it came to the real state of the economy. The ruble is the world’s top performing currency this year, but less because of real muscle than because of capital controls. In South Africa, a dual exchange rate system did some helpful camouflaging. The equity market also looked all-too healthy as with cash trapped, companies simply turned into unwieldy conglomerates, while the real economy languished.
At least in South Africa, financiers were able to openly despair.
“In this day and age, there is no such thing as economic self-sufficiency, and we delude ourselves if we think we are different,” then-Standard Bank Investment Corp CEO Henri de Villiers said in 1988. “South Africa needs the world.”
However, perhaps the most relevant detail is that sanctions did not create a problem, they fatally exacerbated it. In South Africa it was not dramatic that punitive measures were fallible, because the system was already creaking, barely growing 2 percent a year on average in the decade leading up to the mid-1980s, and investment was declining. Apartheid labor market regulation and other distortions made it difficult to allocate capital efficiently even before economic and diplomatic isolation trapped the country in a dead end.
So it is in today’s Russia, where a repressive autocracy, the annexation of Ukraine’s Crimea, and an excessive focus on the military and the natural resources industry at the expense of more innovative smaller outfits, for example, took a toll on growth and real disposable incomes well before this year.
Import substitution works, but comes with high costs and reduced productivity.
“Parallel imports,” for what cannot be produced domestically, are even more inflationary, as Russia is finding for tech necessities. Take the auto sector: In South Africa, major international investors such as GM Corp left, costly high-tech imports pushed up prices and quality sagged.
In Russia, Autostat data show that the average price of a domestic vehicle in the first half of this year climbed by nearly one-third compared with last year, while anecdotal evidence points to a far steeper rise, with a standard subcompact Lada model at as much as three times pre-war prices. In place of Renault, Moscow has brought back the Moskvich.
Then there is the cost of maintaining enough military muscle to sustain the Kremlin regime and keep up occupation and adventurism abroad. Eroding Russia’s capacity to fight in Ukraine is one of the prime ambitions of Western sanctions. South Africa’s experience, where this was also part of broad aims, suggests it does have an impact. Pretoria had shortages of spare parts for aircraft and struggled to modernize; its air superiority over neighbors to the north declined. Material is a growing problem for Russia, especially after the performance over the past week or so in Ukraine.
Granted, there were also troublesome unintended consequences that are repeating themselves. South Africans felt a tighter grip as former South African president Pieter Willem Botha in particular reacted badly to Western outrage. Import substitution policies did help create some (expensive) jobs and build up domestic industry, for example in defense. Cultural boycotts created a proud isolationism among some.
And yes, other ingredients contributed significantly to the end of white minority rule — the presence of an opposition, the declining profitability of South Africa’s gold mines, the crumbling of the Soviet Union, public pressure on private companies and the perception of increased risk from executives themselves — but punishment at a time of weakness made a difference, and tighter sanctions from a broader group of nations would likely have accelerated the end, the point at which the benefit for elites no longer outweighed the costs.
Russia is larger and more repressive, so it can withstand stagnation for longer, but the strain is showing and battlefield losses are piling up.
There is no guarantee of success, but as then-Cape Town archbishop Desmond Tutu said in an address published in the New York Times in 1986, sanctions are at least a risk with a chance.
Clara Ferreira Marques is a Bloomberg Opinion columnist and editorial board member covering foreign affairs and climate. Previously, she worked for Reuters in Hong Kong, Singapore, India, the UK, Italy and Russia.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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